Chapter.6 Individual.Income.Tax

Calculating personal income tax for Non-Resident  Income from real estate transfer: Tax payable = Transfer price x Tax rate 2%  Income from right-to-use of Intangible Assets & Franchis[r]

 First Ordinance Issued in 1990.

 Amended and supplemented 5 times: 1994,

1997, 1999, 2001, 2004.

 New Personal Income Tax Law Issued in 2007,

revised in 2012.

Chapter 6 – INDIVIDUAL INCOME TAX (PERSONAL INCOME TAX – PIT)

PIT Documents

- Law No.04/2007/QH12 dated 21/11/2007.

- Law No.26/2012/QH13 dated 22/11/2012.

 Concept: PIT is direct tax on taxable income of

individuals in a tax period.

 Characteristics:

- Direct tax.

- Progressive tax.

Taxable Subjects

 Residents have taxable income (income earned inside

and outside of Vietnam)

 Non-residents have taxable incomes (income earned in

Vietnam)

Specifically:

 Individuals who have Vietnamese nationality, including

those who are working abroad or study abroad

 Individuals without Vietnamese nationality:

- Foreigners work in Vietnam

- Foreigners are not in Vietnam but have taxable income

in Vietnam

Taxable Subjects

Residents: Either:

Staying in Vietnam from 183 days or more in a calendar

year or 12 consecutive months

Have regular accommodation in Vietnam: have registered

as temporary resident or have had a contract in Vietnam (from 183 days or more)

term-housing-renting-Non-residents: Not satisfied:

Staying in Vietnam less than 183 days in a calendar year

or 12 consecutive months

Not having regular accommodation in Vietnam or have had

a term-housing-renting-contract in Vietnam less than 183

days

Tax period

 For residents: By each year or by each time for which

the income is earned.

- Progressive rate: For individuals who sign labor

contract of 3 or more than 3 months.

- Fixed rate: For individuals who do not sign labor

contract or sign labor contract of less than 3 months with a total income of VND 2 million (2,000,000) or

more Then, individuals must be deducted 10% of the income before get paid.

 For non-residents: each time for which the income is

earned.

PIT Payable = Taxable income X 20%

10 types of Taxable income

1 Income from business;

2 Income from salaries or wages;

3 Income from capital investment;

4 Income from capital transfer;

5 Income from real estate transfer;

6 Income from winning prizes;

7 Income from intangible assets (copyright/patent…)

8 Income from franchise;

9 Income from inheritance;

10 Income from gifts.

1 Income from business

 Income from production and trading of goods and

services;

 Income from independent professions;

 Income from production, trading of agriculture,

forestry and fishery (except for income of

households and individuals who are direct labors in producing the products of agriculture, forestry, salt, aquaculture and capture of unprocessed fishery or only in preliminary processing;

- Not including income of individual business with revenue ≤ 100 million VND/year.

2 Income from salaries or wages

 Salaries, wages ( except for pensions,

salaries’ difference for night work, overtime );

 Allowances, except for:

2 Income from salaries or wages

 Subsidizing, except for:

- National devotees (monthly and one-time subsidization);

- National soldiers, veterans, defenser, State staff in

international-job, young volunteers who already fulfilled their tasks (monthly and one-time subsidization);

- 1 time pension, monthly subsidization for partiotic martyr;

- Unemployment benefit;

- Social insurance;

- Subsidization of solving with “social problems”;

- Life-difficuty;

- Occupational accidents, occupational sickness;

- One-time childbirth or adoption;

- Reducing working capacity;

- One-time subsidization for Vietnamese who live long–time

in foreign country return to work in Vietnam

2 Income from salaries or wages

Non taxable income on:

- Support of employer for employee and their relatives in

medical examination and treatment

- Income from staying-in-Stated-house

- Income from evaluating, examinating legal documents

- Travel expense (chi trả công tác phí), Tuition fee

- Food cooking, food ordering, food coupons for shift, lunch (1)

- Round-trip air tickets for foreign laborers working in Vietnam

or Vietnamese laborers working abroad

- Telephone (2), uniform (3), Gasoline & travel expenses (4)

- Over-time (5); Housing rent (6)

- Income from State-budget-associations and organizations

- Rotating, transferring foreign laborers working in Vietnam in oil and gas, mining industry as in labor contract

2 Income from salaries or wages

Non taxable income on:

(1) Food cooking, food ordering, food coupons for shift, lunch:

Not exceeding VND 730,000 / person / month => The excess of VND 730,000 / person / month will be subject to PIT

(2) Telephone: Example: A Company officially stated that it

supported VND 500K / month for officers to use phone

- Mr A used up VND 450K => Not Taxable

- Mr B used VND 550K and was fully paid by the Company =>

Mr B is subject to the PIT of VND 50K

(3) Uniform:

- Non-cash: Not taxable;

- In cash: maximum VND 5KK / person / year Any difference exceeding 5KK will be subject to PIT

2 Income from salaries or wages

Non taxable income on:

(4) Gasoline & travel expenses:

-If serving as business trips: not taxable;

-If stated as allowance on a labor contract: it is taxable.

(5) Over-time: The amount is higher than normal hours will be exempted

Example: The wage for working time of Ms Hong is

12KK/month (calculated for 20 days & 8 hours / day) => The hourly wage is 12KK / 20 / 8 = 75K VND/h

Ms Hong works an extra hour on holiday and is paid 300% of her normal hour => Income earned = 75K x 300% = 225K So,

- The 225K - 75K = 150K is not taxable

- The remaining 75K is taxable income

2 Income from salaries or wages

Non taxable income on:

(6) Housing rent: Tax exemption of excess of 15%

In January 2020, Mr Phuc has a total income of VND 10KK => 15% of the total taxable income is VND 1.5KK

- Suppose that the rent is paid by the Company of VND 1KK => 1KK is taxable income

- Suppose that the rent is paid by the Company of VND 2KK => ~ 0.5KK is not taxable income

~ 1.5KK is taxable income

3 Income from capital investment

 Interest on loan which lend to organizations and

individuals (except of banks and credit institutions,

interest on life insurance contracts)

 Dividend (except of proprietorship and one-member

limited liability companies)

 Income from capital investment including contribution by

properties, reputation, right-to-use of land, copyright

 The increasing value of capital due to dissolution,

reorganization, merger,… of enterprise

 Interest on bonds, trusted-bills (except of government

bonds)

4 Income from capital transfer

 Income from transferring contributed capital.

 Income from transferring of securities.

 Income from other capital transferring

5 Income from real estate transfer

 Income from transfer of right-to-use-land and assets-attached-to-land

such as house; infrastructure and construction; assets attached to land of agricultural, forestry and fishery.

 Income from the transfer of right-to-own or right-to-use of house

( except of transferor who has only one house, right-to-use land ).

 Income from transfer of right-to-lease of land, surface of water.

 Income from the transfer of right-to-own or right-to-use of house,

including Income from real-estate capital contribution in to establish

an enterprise, or increase business capital of enterprise.

 Income from the authorization of real estate management.

 Income from other transfer of real-estate ( except income from

transfer of real estate between spouses, parents-children,

grandparents-grandchildren, siblings ).

6 Income from winning prizes

 Winning on lottery.

 Winning on promotion prizes.

 Winning on legal betting.

 Winning on casino.

 Winning on games, contests.

7 Income from right-to-use of

intangible assets

Income from right-to-use of intangible assets according to signed contract (patent, copyright, trademark, goodwill…).

8 Income from franchise

Income from franchise contracts.

9 Income from inheritance

 Inheritance of securities.

 Inheritance of business capital.

 Inheritance of real estate (except for inheritance of

real estate between spouses, parents-children,

grandparents-grandchildren, siblings)

 Inheritance of other assets.

10 Income from gifts

 Gifts are stock.

 Gifts are business capital.

 Gifts are real estate (except for gifts of real estate

between spouses, parents-children, grandchildren, siblings).

grandparents- Gifts are other assets.

PIT exemption

1 Income from real estate transfer between spouses,

parents-children, grandparent-grandparents-children, siblings.

2 Income from the transfer of house, right-to-use-land and attached-to-land of transferor who has only one house, right-to-use land.

assets-3 Incomes from value of right-to-use-land of individuals who are

allocated land by the State without payment (or reducing payment) to State.

4 Income from inheritance, gift of real estate between husband and wife, parents-child, grandparent-grandchildren, siblings.

5 Income of households and individuals, who directly produce

agricultural production, converting agricultural land to legalize

agricultural production.

6 Income of households and individuals who directly produce

products of agricultural, forestry, salt, aquaculture and capture

fisheries.

PIT exemption

7 Interest income from deposits at banks, credit institutions; income from life insurance policies.

8 Income from Vietnamese-oversea-remittance activities.

9 Income from difference of salary, of night wage, of overtime.

10 Income from retirement.

11 Income from scholarships of State or of domestic, abroad

organizations.

12 Income from compensation.

13 Income from charity (*).

14 Income from foreign aid as charity or humanitarian purposes.

15 Income of Vietnamese crews who work for foreign ship or

PIT reduction

 In difficulties caused by natural disaster, fires,

accidents, dangerous diseases.

 Considering tax reduction by authorities according

to calendar year.

 According to Decree 126/2020/ND-CP

effected from December 5, 2020: After

declaring tax return, if the amount of tax

payable of an individual is 50,000 VND or

less will be tax exemption.

Calculating PIT for Resident

Tax Payable = (Taxable Income - Deductions) x Tax Rate

PIT Deductions

 Family deductions (Family allowances).

 Social insurance, health insurance, labor fee, unemployment

insurance…

 Donation of charity, humanitarian, studying funds

 One time deduction from total income on:

- For taxpayers: VND 11 million/month (at one working place only)

- For dependents: VND 4.4 million/month/person (including

children, spouse, parents, siblings, grandfather, grandmother,

aunt, uncle, according to deduction statutory).

 From October 15, 2016, according to Article 22 of Circular

26/1026/TT-BLDTBXH dated 01/09/2016: “mid-shift-meals not

allowed to exceed VND 730,000/person/month”.

=> It means that mid-shift-meals allowance in excess of

730,000 VND/person/ month will be subject to PIT.

Dependent definition

 Children under the age of 18, including: biological

children, legal adopted children, illegitimate children, children of wife, children of husband.

 Children over 18 who are unable to work.

 Children studying at universities, colleges with no

income or average monthly income from all sources <= VND 1.000.000.

 Individual who is in or out of working age but disabled,

unable to work, no income or average monthly income

<= VND 1.000.000

Type Taxable income/year

(VND 1.000.000)

Taxable income/month(VND 1.000.000)

Rate(%)

Progressive Rate

Income from capital investment

Tax payable = taxable income * tax rate (5%)

When to pay? At the point of time when organization

or individual pay to tax payers or when taxpayers

receive their income.

INCOME FROM CAPITAL TRANSFER

Transfer of capital contribution:

Tax payable = Taxable income x Tax rate (20%)

Taxable income = Transfer price - Purchase price -

Reasonable expenses

Transfer of stock:

Tax payable = Transfer price x tax rate (0.1%)

When to pay? At the point of time when the capital transfer

transactions being completed in accordance with law.

Income from real estate transfer

Tax payable = Transfer price x Tax rate (2%), or

Tax payable = (Transfer price – Cost – Legal

expense) x 25%

Income from right-to-use of Intangible Assets & Franchise

Tax payable = Taxable income * Tax rate (5%)

Taxable income is the income in excess of

VND10.000.000 under the signed contract.

Income from winning prizes,

inheritance, gifts

Tax payable = Taxable income x Tax rate (10%)

 Taxable income is the value of prize, inheritance

asset, gift in excess of VND10.000.000 per

prize/inheritance/gift.

 When to pay? At the point of time when

organizations or individuals pay incomes to tax payers.

Calculate personal income tax for

Non-Resident

 Income from business:

Tax payable = Taxable income x Tax rate, with:

 Taxable income: income from goods & services, including

the cost which is not refunded paid by the purchaser on behalf of non-resident

 Tax rate:

- 1%: merchandise trading

- 2%: manufacturing, construction, transportation & others

- 5%: service business

Calculate personal income tax for

Non-Resident

 Income from salary/wages:

Tax payable = Taxable income x Tax rate (20%)

(income earned in Vietnam regardless of who pays)

 Income from capital investment:

Tax payable = taxable income x tax rate (5%)

(Income received from investment activities)

 Income from capital transfer:

Tax payable = Transfer Price x Tax rate (0.1%)

(Regardless of the transfer occuring in Vietnam or abroad).

Calculating personal income tax

for Non-Resident

 Income from real estate transfer:

Tax payable = Transfer price x Tax rate (2%)

 Income from right-to-use of Intangible Assets &

Franchise:

Tax payable = Taxable income * Tax rate (5%)

(Taxable income is the income in excess of VND10.000.000

under the signed contract)

 Income from winning prizes, inheritance, gifts:

Tax payable = Taxable income x Tax rate (10%)

(Taxable income is the value of prize, inheritance asset, gift in

excess of VND10.000.000 per prize/inheritance/gift)

- House rent: 300,000,000 (5% tax rate).

- Winning an 100,000,000 VND prize in a saving program of

VietinBank (10% tax rate)

Requirement: Determine Mr An’s PIT? Assuming that Mr An already registered family deductions for 2 dependents and

Mandatory social, health & unemployment insurance is 10.5%.

Solution:

Income from salary =

= 536,312,849 + 50KK + (1KK – 0.73KK) x 12 = 589,552,849 Deductions = (11KK x 12) + (536,312,849 x 10.5%) +

(4,4KK x 2 x 12) = 293,912,849

Taxable income = 589,552,849 - 293,912,849 = 295,640,000.

=> Salary tax payable = 39.328KK (from progressive tariff)

=> Rent tax payable = 300 KK x 5% = 15 KK

=> Winning-prize tax payable = (100KK – 10KK) x 10% = 9KK

=> Total PIT payable = 39.328KK + 15KK + 9KK = 63.328KK.